To prepare for our expanded FinovateFall conference on September 11 through 14, we’re taking a look at each of the six summit discussions that will take place on days 2 and 3 of the conference. Today, we’re previewing trends in Digital Lending.
Summit #2: Digital Lending
Lending is the foundation of banking. So it is little surprise that some of the biggest successes and greatest challenges in financial technology have come from startups and FIs competing to find out who can provide borrowers with more funding and better terms while ensuring investors have a range of options across the risk spectrum for their capital. With global economies stabilizing in the wake of the Great Recession, rumors of rising interest rates, and expectations that digital lending will encompass 10% of all loans in the U.S. and Europe over the next three years, what new opportunities await lenders and borrowers in 2017 and beyond?
Approved by AI
One major trend in digital lending is the use of artificial intelligence and machine learning to augment traditional, loan approval methods.
Artificial intelligence promises to help lenders discern which borrowers are likely to pay back their loans. And as prosaic as that sounds, many innovators in the digital lending space will argue that traditional methods are wanting in this very specific way. By focusing essentially on a borrower’s “credit career,” lenders have historically overlooked credit-worthy would-be borrowers among the cash-first, underbanked, and immigrant populations (especially international graduate and post-graduate, millennial-age students).
While the use of social media to help assemble a borrower profile exists, the role of AI to help lenders make better financing decisions is far more than just “Loan Approved by Facebook.” By asking more – and better – questions, and leveraging real-time responses, AI and machine learning are helping lenders see how, as one fintech executive once told me, “behavior is more important than biography” when it comes to making good lending decisions.
Will Regulations be Right-Sized for Innovation?
Regardless of where you sit on the free-market spectrum, there is little doubt in the capacity of regulations to spur innovation. Regulation is not the only incentive to develop new technologies, of course, but it is a critical one in industries like digital lending, in which entire lines of business can be opened up or cut off by regulatory change. Growth in the digital lending space has been rapid. PwC cites Morgan Stanley estimates of more than 200 digital lenders in the U.S. currently, and global volumes in excess of $290 billion by 2020. As such regulators and would-be digital lending disruptors alike have struggled to keep up with demands for both better protection and data privacy on the one hand, and more transparent access to loan solutions and investment opportunities on the other.
The challenge for regulators in the digital lending space is, to borrow a phrase, to lead, follow, AND get out of the way. Fintechs need to be ready to take advantage of the new opportunities presented by regulatory change (such as opening up markets to non-accredited investors), leverage the most powerful compliance tools to ensure they are in-line with new regulations, and be prepared to be a pioneer in those areas where the relative lack of regulation may allow for greater experimentation and innovation.
Home is the Heart of Digital Lending
We have been champions of the notion that mortgagetech is the future of fintech. And much the same can be said of mortgagetech’s influence on innovation in digital lending.From technologies that make it easier for consumers to shop for homes and financing, to new opportunities to finance and invest in commercial and residential development, mortgagetech is the sleeping giant in the digital lending space.
Digital mortgage lending companies like LendingTree and Sindeo are examples of how technology is transforming not just one of the largest parts of the economy, but also one of the most significant financial experiences in the average person’s life. And beyond companies that are directly lending to homebuyers are the ecosystem of innovators from Avoka to Top Image Systems that are designing and incorporating technologies that make loan applications easier to complete; data easier to collect, share, and secure; and the entire purchase process less costly and more efficient.
Coming September 13 and 14, the Digital Banking Summit at FinovateFall is a great opportunity for deep dives and expanded discussions on critical issues in fintech. Join our live panel discussions with industry thought leaders, bank executives, and fintech professionals. Register before July 7 and save on the ticket price. Here’s a peek at a few of the planning conversations for the Digital Lending track at the Digital Banking Summit.
- P2P Lending: Is marketplace lending still competing with banks?
- Alternative Credit Scoring: How to enhance your underwriting model using big data and machine learning.
- Digital Mortgages: How mobile is changing the rules of mortgage originations
- Student Lending: Helping millennials work through the student loan crisis.
This is the second of our six-part FinovateFall Summit Series. Stayed tuned for more next week when we look at Wealth Management & Investing.